US CPI Preview: Don't expect the market to react too much – TD Securities

On Wednesday, the Federal Reserve will announce its decision on monetary policy. Previously, at 12:30 GMT, US inflation data from May is due. According to analysts from TD Securities, CPI inflation likely remained weak in May, but not nearly as weak as in March and April. They expect the index to rise 0.1% m/m and 0.3 y/y. 

Key Quotes: 

“CPI inflation likely remained weak in May, but not nearly as weak as in March and April, when core as well as energy prices were deflation-like; that weakness more than offset strength in food-at-home prices (with strength in food prices likely continuing into May). The travel parts probably stabilized in May after plunging in March and April. That said, we believe one of the after-effects of the COVID-19 crisis will be a decline in the trend in inflation due to a net rise in slack.”

“We don't expect the market to react too much to this report, with more focus on the FOMC later in the day. A better than expected core print could create a bit of a bear steepening move. We don't think that the Fed will use a better than expected inflation report to suggest an earlier pace of policy normalization. The Fed continues to underperform its inflation target and remains concerned about downside risk. Thus, any rise in rates should be accompanied by a steepening of the curve.”